Donald Trump addressed the nation (for those who watched) on Tuesday night from the Oval Office. While there was originally some talk of the network stations not carrying the short speech, all of the major networks covered it.

A speech to the American public was long overdue for Donald Trump.  Unfortunately, he picked the wrong topic.

Maybe I say this just because I don’t feel that strongly about the immigration issue.  It is a tough issue for libertarians to deal with because we live in a world of massive government and government-owned land. If we didn’t have a welfare state at home and a warfare state abroad, then I think that would resolve at least 90% of the issue.  Most people wouldn’t be coming to the U.S. to hurt people (which they mostly don’t anyway) or to look for handouts.  The only handouts immigrants would be able to get would be from voluntary charity.

Trump has become obsessed with his wall.  It was a major campaign issue of his in 2015/ 2016, so you could say that he is just trying to fulfill his campaign promises.  I have my doubts that a wall would be that effective in keeping people out, and as Ron Paul used to say, it could eventually be used to keep people in.

I think the whole partial government shutdown standoff is due to Ann Coulter, and perhaps a few other conservative voices.  Coulter always throws her support behind the latest bold conservative. She had a political love affair with Chris Christie at one time.  Then she realizes that the person is more talk than action.  She thought Trump was different when she supported him.  So when it looked like the wall was quietly being dropped from his agenda, she attacked him on it.

If Trump were really serious about the wall, then he wouldn’t have waited until the end of 2018 with an incoming Democratic majority in the House of Representatives. Why wasn’t Trump doing this a year or more ago with Paul Ryan as Speaker of the House?

Now Trump is stuck. Nancy Pelosi and Chuck Schumer won’t budge.  Those two are terribly annoying people, but I have a feeling they are going to win this round of the political battle.

Most of the government has not shut down (unfortunately).  In particular, the wars overseas never end during a government shutdown.  Most of the IRS has closed for business with the latest shutdown, so that seems reason enough to keep it going.  But I don’t think Trump is going to be able to get his way on this.  The Democrats know what they are doing. They don’t care about $5 billion. It is a drop in the bucket in comparison to the well over $4 trillion annual budget.  Pelosi and Schumer just don’t want to fund any part of a wall because they don’t want any symbolic victories for Trump.

Trump’s only option to get his wall is to declare a national emergency and go ahead without Congressional approval.  I think this would be a great mistake, and it would set a bad precedent for the future.  It took Marco Rubio to point out that the Democrats might use this power in the future to declare a national emergency with so-called climate change.

The Real Issues

I have been preaching for a while now that Trump should address the nation in primetime, but not on immigration.  He should address the deep state that opposes him at nearly every turn. He should address the spy agencies and the intelligence agencies that operate with virtually no Congressional oversight.  He should address foreign policy and explain his commitment to withdrawing troops out of Syria and other wars in the Middle East.

Most of all – and this is related to the other points about the deep state and the secretive agencies – Trump should address the allegations of colluding with Russia and Russian interference in the election.  These false and unsubstantiated allegations are just continually thrown out there by the talking heads in Washington DC and in the establishment media.  They have no credibility.

It is weapons of mass destruction all over again.  In this case, they make accusations against Trump and Russia in order to kill several birds with one stone.  It increases tension with Russia and stops any sustainable talk of peace and friendship.  It provides a reason on why Hillary Clinton somehow lost to Trump in the election.  And it threatens Trump’s presidency with distractions and the possibility that he could even be prosecuted.

I don’t think Trump will go to jail for any of the made up stuff.  Maybe his lawyer really did pay off women to not talk, but I don’t think this qualifies as any kind of crime.  Of course, with federal law, they can make anything a crime.

If anything, they would use the threat of prosecution to get Trump to step down as president. They wouldn’t actually try to send him to jail or otherwise you would see a version of Trump that would make any previous version look tame.  He can obviously be a fighter, and if he thought he might go to jail, he would go down swinging.  He would try to take the deep state down with him.

Make no mistake about this.  Mueller and all of the other “investigators” are part of the criminal gang.  They are the ones who should be on trial.  They are liars and much worse.  They are the thugs of society who happen to dress up in suits.

I still have no idea how much Trump understands in all of this.  He obviously knows that a lot of people are out to get him. I don’t know if he understands the depth (for lack of a better word) of the deep state.  I don’t know if certain people have gone to him directly and made threats to him.

I expect Trump will run for re-election in 2020, but nothing is certain right now.  A lot can change when you have a whole swarm of corrupt actors trying to take you down.

Trump is far from being a libertarian, but he can do a great service for liberty by helping to expose the stench of Washington DC.  He has already done that to a certain extent, but he could do so much more.

When Trump expends his political capital on a fight for a wall at the Mexican border, it doesn’t expand liberty.  We can only hope that he will start expending even more energy on exposing the criminality of the deep state that is trying to take him down.

There are several reasons to be bullish on gold, but I think most of these reasons apply more to the long run.  The short run is too hard to predict.  If it was easy, then I would be extremely wealthy.

I am an advocate of owning gold and other investments that correlate with the price of gold. I always caution against gold mining stocks.  It’s not that I don’t ever recommend mining stocks or buy them myself, but I warn people that they are a very risky investment.

The main reason for owning gold (or gold equivalents such as GLD) is for insurance.  It is a hedge against massive currency depreciation.  It is a hedge against disaster.  It is a hedge against long-term fiscal insanity from governments.

I recommend having 25% in gold and gold-related investments as part of a permanent portfolio.  It is there to pull up your portfolio during times of higher price inflation.

It is ok to add more gold to your portfolio, but then it should be viewed as a speculation, just as owning any mining stocks would be speculative.  Gold obviously has periods where it goes down in terms of U.S. dollars (or whatever currency you are dealing with).  If you live in Venezuela and own some gold, then you probably aren’t going to exchange it for the local currency, which has undergone hyperinflation.  But in most places, if you want to actually spend your gold, you would likely first convert it back in to the currency that is widely used.

In terms of U.S. dollars, gold has done really well since about the turn of the century.  If you bought an ounce of gold for under $300 in 2000, then you have done well.  It has been a rougher ride since about 2011.

If we go through a recession in the near future – which is looking more likely with a yield curve that is almost inverted – then I don’t expect gold to perform well in the near future.  When the financial crisis struck in 2008 and early 2009, gold went down with stocks, although not nearly as much as stocks.  When there is recession that is not accompanied by high price inflation, people seek safety in cash and bonds.  This is particularly true in the U.S., where U.S. Treasury bonds are seen as the safest investment.  As people seek safety and liquidity, gold tends to not be in high demand.

But longer term, things are more bullish for gold.  If we do hit a recession, it is likely that the Fed will stop deflating and start inflating its balance sheet again.  It is likely to lower its target interest rate.  An easy money policy from the Fed tends to be bullish for gold.

On top of this, the national debt is about $22 trillion, with unfunded liabilities estimated to be as high as over $200 trillion.  During our current so-called prosperous time, the federal government is still running annual deficits in the ballpark of $1 trillion.  Those massive deficits are projected to continue even without accounting for a major recession.

In the long run, this is all bullish for gold.

Public Opinion and State Laws

The Mises Institute recently published an article about how some states are changing their laws to exempt gold from capital gains taxes.  This is not a concern for residents who live in a state with no taxes on income and investments (at a state level).

Some libertarians preach for a gold standard.  The proper libertarian position is that the free market should determine what should be used for money.  It’s just that gold (and, to a lesser extent, silver) has historically been chosen by the marketplace as money.  A government-run gold standard would, however, likely be much better than the pure fiat standard we deal with today.

In order to get closer to a free market in money, I believe it is important to repeal legal tender laws.  When Ron Paul was in Congress, he would regularly sponsor legislation to repeal legal tender laws.

But perhaps the most important aspect of this is to repeal any taxes associated with gold and silver.  As it currently stands, you are supposed to pay capital gains taxes on gold and silver.  If you bought a one-ounce gold coin for $300 and later sold it for $1,300, then you would owe taxes on the $1,000 gain. This seems rather unjust considering that the gold price increases over the long run largely due to inflation. Yet, you have to pay taxes because of the “gains”, which is really mostly currency depreciation.  On top of that, the government considers it a collectible, which can mean a higher tax rate.

Most individuals probably don’t pay taxes on small transactions of physical gold, or at least that is my guess.  But a major business is not going to disobey the law and make transactions in gold if it could ruin the business.  If a business were to say that people could transact in gold (or electronic equivalents representing gold), then it would present a problem of calculating taxes owed.  Every purchase would have to be translated into dollars in order to track any capital gains on the gold.  It would just be a total mess for all parties involved.

Therefore, I believe that getting rid of the federal tax on gold and silver would be a major step forward in allowing money competition.  It is a great sign that many states are eliminating these taxes, or at least considering it.

This can be compared to marijuana laws.  In the case of gold taxes, states are not defying the federal government as they have with marijuana laws, but I still see a close resemblance. When public opinion is shifting, it is more likely to show up at the state and local levels.  The federal government may just be lagging behind in gold taxation, just as it is lagging behind in marijuana legalization.

I believe it is just a matter of time before the federal government legalizes marijuana, or just leaves the matter up to the states (which would be the proper Constitutional position).  This could easily happen within the next few years.  Hopefully the same can be said for eliminating taxation on gold and silver. I am not saying it will happen in the next few years, but it is a possibility.  It is more likely now than it has been for a long time.

If the federal government were to eliminate taxation on gold and silver, I would expect the demand for gold and silver to go up.  I would expect the price of gold and silver to shoot higher.  Just the announcement that such legislation was likely to pass would probably drive the dollar price of gold higher.

I have not been a big fan of Bitcoin, but it has surprised me how much it took off.  If I had known there would be so much fanfare around Bitcoin, I would have bought some bitcoins early on and made a bunch of money.  I think the Bitcoin bubble will collapse (if it hasn’t already), but it is promising that there is so much interest out there for competing forms of money.

With the popularity of cryptocurrencies, and with state legislatures taking action to eliminate taxation on gold, this could ultimately be a bonanza for those who own gold. Silver is a little less clear, but silver investors would likely benefit too.

As people seek alternatives to the U.S. dollar and fiat currencies in general, we will hear more about this subject other than from predominantly libertarian and gold bug websites. This is bullish for gold over the long run.  If you are going to buy and hold an asset, gold seems the most promising, but you’ll have to be patient.

Happy New Year!

For some reason, the new year is seen as an opportunity to start fresh.  You can’t necessarily make all of your past mistakes vanish, but it is an opportunity to at least get on the right path going forward.  Whether it is losing weight or saving money or spending more time with family, you can make corrections to improve your situation going forward.  Hopefully your past mistakes aren’t so bad that they are impossible to correct.

It is not entirely clear why the new year brings a sense of starting over.  January 1 is just another day in your life, although often a holiday from work for most people.  You could just as easily make corrections to your life on July 1, or really any other day of the year.  So if you are reading this on a day other than January 1, you can still make corrections to your life for the better.  This sounds obvious, but sometimes we need to be reminded of the obvious.

One of the marks of the new year is the New Year’s resolution, at least for Americans. This often means just trying to get into good habits.  It means doing something that you should have been doing all along.

While I think goals are good, I also think it is important to set controllable goals.  If you want to lose weight, don’t make your goal to lose 20 pounds.  Or if that is your goal, it should only be your broad goal.  You have to be more specific to make sure you are taking the correct actions.  Your goal could be to consume no more than a certain amount of sugars and carbs per day.  Your goal could be to walk around your block at least twice per day.  You control these specific outcomes.  You don’t fully control how many pounds your body loses each week.

If you are trying to make more money, don’t make it a goal to get a 20% raise this year.  You are not fully in control of this goal. Maybe the economy will turn down. Maybe your boss won’t recognize your hard work, or maybe it just isn’t in the company’s budget.  Instead, set goals that could possibly lead to getting that 20% raise.  Set a goal of producing more at work, or showing up 15 minutes earlier every day.

This is not just true of New Year’s resolutions but for any goals.  You want to be in control of your action steps, and you don’t want to feel like a failure if your goals aren’t met.  You can’t control if your boss is a jerk and doesn’t want to give you a raise even though you are producing more than your peers. You can control what you can control.  And if you take specific action steps, then they are likely to eventually lead to something good, assuming you set up the right action steps.

A Financial Review

I think the new year is also a good time to do a review of your finances.  This is what I have done in the past.  And I know I could do it on July 1 or any other day, but it just makes sense to do it on January 1.  This is when I get year-end statements, and it is a time that is easy to remember.

If you are doing tax planning, you may have to do that before January 1, but that is one small piece of the puzzle.

The new year is a good time to reflect on your budget (if you have one).  It is a good time to assess where your money is going and what you are getting value from.  If you have a monthly subscription for something, are you getting your money’s worth from it?

With your year-end statements, it is a good idea to calculate your approximate net worth. If you own a primary residence, you can calculate your net worth with and without the equity.  I wouldn’t count most of your tangible things in your net worth.  Even with a car, I generally wouldn’t count it.  You certainly shouldn’t count things such as furniture and electronics, as they are consumption items that you probably aren’t going to sell.  And if you do sell anything, it probably isn’t worth much, and you are probably just replacing it with something more expensive.  There are exceptions with certain collectibles or things you could easily sell and not replace.

Since you are looking at your finances, it is also a good time to make any adjustments that you have been meaning to do or that should be done.  If you have to reallocate your portfolio, go ahead and take care of it.  If you have been meaning to open up a higher yield savings account, don’t keep procrastinating.

Important, But Not Urgent

Personal finance is one of those areas that people tend to neglect far too much.  It is one of those items that is not urgent, yet important.  We take care of the things in our life that are urgent and important.  We also take care of things that are urgent but not that important.  But we forget, or tend to neglect, the things that have no urgency, yet are highly important.

Imagine if Tom Clancy had not started writing because it wasn’t urgent at the time.  Imagine if Steve Jobs had waited to start Apple because he had some other seemingly important things to take care of at the time.

When it comes to your personal finances, or really anything else, don’t let non-urgency be your enemy.  Don’t look back 30 years from now and say, “Gee, I really probably should have set up that Roth IRA and put some money away.  I could be a lot richer now if I had taken a few minutes and done that.”

Stephen Covey wrote about the urgent vs. the important.  If you are going to make one resolution this year (and forever), I think it is a good idea to remind yourself to focus on things that are important but not urgent.  You typically don’t need to remind yourself of the things that are urgent.  This is true of personal finance and most other areas of your life.

With the stock market showing signs of panic, and the yield curve on the verge of inverting, the possibility of a recession is looking more and more likely for 2019.  But while we can discuss the probability of a recession coming, perhaps a more important question is what to do in advance.  How can someone prepare for a recession?

Much of my focus for this blog is on investments.  I recommend a permanent portfolio as described by Harry Browne.  I believe this is an appropriate portfolio at any time, regardless of whether we know a recession is coming or not.

In terms of investments, people would obviously prefer to be in stocks during boom times.  But the problem is that we can’t predict the future.  It is hard to know what will happen tomorrow or next year.  Investing in the permanent portfolio is an admission that we really can’t predict what will happen, as it is dependent on millions of human beings acting.

It’s entirely possible that things could turn around.  It’s possible that the Fed could make a new announcement that it is stopping the reduction in its balance sheet.  Maybe stocks will return to a bull status.  Nobody knows for sure.

If you really believe that we will soon hit a recession and you want to gamble, then you can obviously short the market (bet on stocks going down).  Just realize that this is speculation, and you could lose much of your money if you are incorrect.

For conservative investors, it is better to stick with the permanent portfolio, or something close to it.  Even for really aggressive investors, there is nothing wrong with putting half of your money in the permanent portfolio and then using the other half for speculation.

Income

Although I tend to focus on investment strategy, this is not the number one priority for most people, or at least it shouldn’t be.  If you are older and have a high net worth, then your investment portfolio really is probably your number one financial priority.  But for most people, the most important thing is your income.

A recession can actually be beneficial for the middle class because it helps to lower prices and reallocate resources.  The problem is that the misallocated resources have to correct, and part of that process means a shifting of labor.  This means unemployment or reduced work hours for some.

If your income is the most important thing to you financially – and for most people, it should be – then you should take steps to reduce the likelihood of losing significant income.

There are a number of things you can do here.  If you are employed, then it is important to make yourself indispensible to your employer, or at least to be good enough that it would be painful for your employer if you left.  Most companies don’t go bankrupt.  It is more common to lay off a certain percentage of the employees.  If you are in the top 20% of employees, then you will probably be safe.

It is also important to maintain marketable skills.  If you do find yourself unemployed, you want to be able to find employment elsewhere.  In a recession, a lot of people are looking for jobs, so it is harder to find one.  You may have to take a pay cut.  But if you have skills that are useful to employers, then it will increase your chances of finding employment.

If you have any kind of a side hustle, then it is a good idea to keep that going.  Or if you don’t, perhaps you can experiment with something.  You may even be able to make extra money on the side with your skills from your full-time day job. You will obviously want to make sure you are not in conflict with your main employer on this.

A final point about income is that it is good to have friends and connections.  It is good to have connections anyway, but it is especially helpful when looking for work.  You have a much better chance of finding employment if you have a vast network of friends.  They can give you ideas.  They can tell you if there are openings at their work.  Or maybe they know someone else who is looking for someone dependable.  You will probably have a better chance of finding work from your network of friends than from handing in your resume to random companies.

Debt and Liquidity

In preparation for a recession, monthly cash flow becomes more important.  It is not just a matter of income, but also what your expenses are.  I think the most important thing is to have low fixed expenses.

If you eat out a lot and spend money on entertainment, this is the easier part to adjust.  It is better if you cut back before a recession hits, but at least you aren’t locked into anything.  If you have to start meal planning at home instead of going out to eat, you will easily survive.

The problem for many people is that they are locked into these long-term expenses.  They buy houses with a big mortgage and cars with car loans.  They may have student loan debt or other debt.  If a recession hits, they can’t easily cut back because these are obligations. They could default on these things, but that is what we’re trying to avoid here.  If you default on your mortgage, you give up your house. And good luck defaulting on student loan debt.

Even with smaller things such as a cell phone contract or a home equity line of credit, you should be careful.  You don’t want to lock yourself in for another monthly expense that is hard to escape.

In preparation for recession, you should try to pay down all debt that isn’t mortgage debt. This is good advice even if a recession isn’t coming.  You want to reduce or eliminate your debt so that your monthly obligations are less.

If you don’t have any debt (other than your mortgage), then you should definitely build up an emergency fund.  Some advisors will say you should have 6 months of living expenses.  But if a recession hits and you are unemployed, you are going to want more than 6 months of reserves.  I typically recommend 9 months, but even here I would go longer if you are worried about your employment situation.

Overall, you want to make sure that you have liquidity.  In other words, you need access to money to pay your bills and unexpected expenses.  This is why you shouldn’t pay extra on your mortgage unless you are set up with a good emergency fund first.  It is also why you shouldn’t be pouring money into a 401k plan unless you have a good emergency fund.  You can’t easily access money tied up in a mortgage (extra principal that you’ve paid) or in a retirement account (excepting a Roth IRA).

The key here is cash flow and being able to pay your bills when times are tough.

Mindset

It is hard to prepare for a recession.  There aren’t a lot of things we can do to prepare other than being smart financially.  All of the things mentioned above are really things that should be done whether you think a recession is coming or not.

Still, I think we shouldn’t overlook mindset.  If you think a recession is coming, then at least you won’t be caught off guard when it happens.  You can think a little more calmly and rationally about the situation.

If you are mentally prepared, you will also find it easier to adjust to a more frugal lifestyle. If you go out to eat a few times a week, then it won’t be as big of an adjustment for you if you have to start eating in all of the time.  For someone who eats out and thinks the good times will last forever, it is a much harder adjustment.

You can’t fully know what will happen to you personally in a recession, but it helps if you are mentally prepared.  Instead of looking at it from a pessimistic point of view, just understand that it is a reality that you are mentally preparing for.

It also helps to compare your situation to others in the world who have it much worse. Think of poor people living in huts on the side of the road who have to beg for food.  If you have to eat cheap meals at home, then it won’t seem so bad in the big picture.

Even during the Great Depression, at least 75% of the people who wanted to work had work. People found a way to survive. If you are mentally prepared, and you take some basic financial steps to improve your situation going into a recession, then you are likely to come through it without too much going wrong.

I hope you have a very Merry Christmas this holiday season, regardless of whether you celebrate.

I don’t have a huge audience with this blog, but I much appreciate the people who do take the time to read.

On many holidays, I remind people to enjoy themselves and to not engage in heated debates with friends and family.  This is especially important in our time of Trump.

You probably aren’t going to convince any of your friends and family of your viewpoint anyway. And if you do, it isn’t going to happen by being really argumentative, unless the person you are talking to has a really open mind.

I think Christmas time especially is a time to act like a libertarian instead of preaching libertarianism.  You can demonstrate to others that you don’t have to be a statist to be a giving and loving human being.  I believe that the act of being a libertarian means being loving because you don’t want to initiate force on others for your social and political goals.  However, it is important to sell libertarianism through your actions.

You can be a libertarian and never give anyone a gift.  You can be a libertarian and not spend Christmas dinner with family.  You can be a libertarian and even be unkind to others as long as you aren’t using force.

However, if you want others to be sold on a message of liberty, then you yourself have to be a role model.  If you are a kind and loving person whom people want to be around, then they are more likely to be open to your pro liberty views.

Sometimes I write these things as a reminder to myself just as much as I am writing for others.

Merry Christmas!

I am an advocate of paying down or paying off a home mortgage when the situation fits right. When it comes to contributing to a 401k plan, my feelings are somewhat mixed, although I generally find it makes sense to get an employer match.

The biggest problem with putting extra money into paying down a mortgage or contributing to a 401k plan is the same.  The problem is that you are locking up your money.  It becomes illiquid.

In the case of a mortgage, you can’t get back that extra you pay on the principal amount unless you refinance or sell your house.  If you pay off the mortgage in its entirety, then you get the benefit of the additional cash flow each month.

In the case of a 401k plan, you will likely be restricted from withdrawing “your” money if you still work for the employer that sponsors it.  You may be able to take a loan, but then that will hurt your future cash flow, as you have to start paying off the loan almost right away.

Even if you no longer work for the employer that sponsored your 401k plan, you will still get hit with regular income taxes (assuming it’s not a Roth 401k), and you will pay an early withdrawal penalty if you are younger than the designated retirement age of 59 and a half.

Therefore, if someone is considering paying down their mortgage or contributing extra to a retirement plan, I recommend that this only be done if a liquid emergency fund is already set up.  While personal situations call for different actions, I generally think a 9-month emergency fund is appropriate, although a year might be better.  This would be based on 9 months of living expenses, not 9 months of salary.

In the case of a mortgage, you can take into consideration whether you are actually able to pay off your mortgage.  If you can pay off your entire mortgage, but it will leave you with only 4 months of living expense, it may be worth doing anyway.  Your monthly expenses will go down by the amount of your mortgage (not including any taxes or insurance that is rolled in). Your monthly cash flow should increase substantially, and you should be able to build up your emergency fund quickly with the additional savings each month.

Liquidity is the Key

When setting up an emergency fund, liquidity is the most important factor.  If you lose your job or you have a major emergency expense, then you have to be able to access your money quickly.  If most of your money is tied up in your house, then this is not liquid.  It takes time to sell a house.  It even takes time to refinance, and this could be costly with closing costs.

When it comes to accessing emergency money, you typically need to be able to access it within a month.  There may be scenarios where you need to access money almost immediately.  But in today’s world with credit cards, you can usually push things off for a month without hurting yourself much.

Most people think of an emergency fund as a savings account or money market fund.  These are obviously appropriate vehicles. The problem is that they pay almost nothing in terms of interest.

I think it is good to have some extra money in your checking or savings account for emergencies. At the same time, I don’t think it is necessary to have 9 months of living expenses sitting in your bank account.

You can still have liquidity without having total safety.  If you have a non-retirement brokerage account, it is generally liquid.  You can access the money reasonably quickly.  The only risk is if you are investing in stocks or other investment vehicles that could lose significant value.  Therefore, you have to adjust based on the riskiness of your investments.

If you are invested heavily in stocks, then you may want to double the amount in that account that you would actually need for an emergency.  You should assume that you could lose half of your money with a market downturn.

If there were a major market downturn and you had to access your money, this would be painful because you would be selling securities that are down in value.  You would have bought high, and you would be selling low.  This is a bad investment formula.  Therefore, this “emergency money” should only be for really dire circumstances.  You shouldn’t be selling stocks when they are low in order to fund a broken water heater or to pay for Christmas gifts.

I am an advocate of the permanent portfolio as designed by Harry Browne.  It is far from being perfectly safe, as is the same with every other investment.  Even money in a bank has risk, especially when it comes to inflation.

The permanent portfolio will generally avoid major swings.  It is well diversified, which smoothes out the ride.  You won’t get the wild ups and downs as you would investing in one sector or one investment type.  Therefore, I think it is reasonable to have part of an emergency fund in the permanent portfolio if it is outside of a retirement account.

In addition, consider that you can invest in a Roth IRA, which is a way to allow your investments to grow tax free (assuming the government doesn’t change the rules). You have already paid taxes on your earnings that are invested in a Roth IRA, but you will not pay taxes on the compounding gains.  This is especially helpful if you have a large degree of uncertainty of tax rates in the future.  You lock in the certainty of paying the tax rates of today.

I think it is typically better to leave your Roth IRA alone in terms of not withdrawing money from it early.  You can add to it, and you can rebalance your portfolio as necessary, but you don’t really want to withdraw money before the designated retirement age if you can help it.

With that said, I still think you can account for a portion of your emergency fund with a Roth IRA (not a Roth 401k).  You can withdraw your money at any time.  And if you only withdraw the principal amount that you have contributed, then you will not pay any additional taxes or penalties.  You would only potentially owe a penalty if you withdraw capital gains within 5 years.

Therefore, if you have a 6-month emergency fund in your bank account and a sizeable amount in a Roth IRA invested in something relatively stable like the permanent portfolio, then I think this is appropriate for the needs of most people.  You would want to touch your Roth IRA last in most situations, but at least you know it is there when you need it, and you won’t be penalized for accessing your money.

The Federal Open Market Committee (FOMC) released its latest monetary policy statement.  There wasn’t total certainty in what the FOMC would do, but it did raise its target range for the federal funds rate by 0.25%. The target range is now between 2.25% and 2.50%.

The Fed is now saying it expects two rate hikes in 2019 instead of three.  Therefore, this was being labeled as a dovish rate hike by some, which I suppose is something of an oxymoron.

The financial news media is screaming that the Fed has hiked rates again.  This is only sort of true.  It raised the target federal funds rate, which is the overnight borrowing rate for banks.  It did this by hiking the interest rate paid on bank reserves.  But this does not necessarily translate into market rates going up.

The short-term yields initially went up on the news, but finished the day mostly flat.  The longer-term yields fell meanwhile. In other words, the yield curve has flattened more.

The 30-year yield is now at about 3%, which would have seemed highly unlikely a few months ago. The 10-year yield is below 2.8%. There is slight inversion between the 2-year yield and the 5-year yield.

I like to compare the 10-year to the 3-month yield.  That spread is now less than 40 basis points (0.4%).  We could be just a matter of a few months away from an inversion there if things continue.  If things really get crazy, there could be an inversion within weeks. That’s not my prediction, but I am just saying that it is not impossible.

An inversion of the yield curve is a major warning signal of a recession.

The stock indexes were largely up on the day when the FOMC statement was released.  Stocks quickly gave up their gains on the day, and they continued downward.  I watched some of the market movement live, and it was quite volatile for a while.  There were 100-point swings in the Dow within minutes.

The Dow finished down over 350 points, while the Nasdaq was down over 2%.  The Dow and S&P 500 both finished at lows for 2018.

Jerome Powell Speaks

Jerome (Jay) Powell, the chairman of the Federal Reserve, held a press conference shortly after the release of the statement.  There were a few interesting things to note.

Powell was asked numerous times (with slight variations) about Trump’s pressuring the Fed with his tweets and comments.  Now that Trump is president, he has become even more of a low interest rate guy.  He has taken ownership of this economy, which was a poor political calculation on his part. I suspect that when things get worse, he will blame the Fed even more than the Democrats.

The Fed will be to blame, but it will be more for its actions from 2008 to 2014 than from its actions today.  The Fed’s tightening is just helping to expose the malinvestments from the Fed-generated boom.

Powell was not about to flame up a battle with Trump.  Powell mostly sidestepped the questions by just saying that the Fed is an independent entity and is acting without political consideration.

This is ironic given the fact that the Fed chair himself was nominated by Trump.  The Fed exists because of the federal government and politics.  The Fed holds a monopoly over the nation’s money supply.

Thankfully, Powell was also asked about the Fed’s balance sheet.  He replied that the balance sheet reduction program will continue as planned.

The Fed is now draining approximately $50 billion per month from its balance sheet by not rolling over maturing Treasury debt and mortgage-backed securities.  While it has a long way to go to unwind QE1, QE2, and QE3, it is not insignificant either.

The Fed nearly quintupled its balance sheet from 2008 to 2014 to well over $4 trillion, and it is never going to reduce it back to anywhere near the levels of 2008. But at a reduction rate of $50 billion per month, that is $600 billion per year.  If the economy keeps softening, I expect the Fed to put a halt to this tightening in 2019, despite what Powell says now.

This sets the stage for an interesting 2019.  Will it finally be the year that the massive bubbles pop?

Some people are so contrarian that they don’t expect a recession because so many people are now talking about the possibility of one.  But we live in the internet age, where you can find opinions all across the board easily.

I listened to some of the people on CNBC today after the FOMC announcement.  There were several guests who were essentially saying that there are no bubbles.  And you even get a few saying that now is a good time to buy.  So there are plenty of bull optimists out there still.

If anything, the establishment media might be a little less hesitant to talk down the economy than in times past because they are so anti Trump.  I wouldn’t really listen to the establishment media one way or the other, except for possible entertainment value.

The main thing to watch is the yield curve.  And with the latest Fed move, the yield curve just flattened more.

In the 1980s, and even after, there were Americans who were warning about the Japanese taking over economically.  It’s still not clear what “taking over” means, but whatever it means, it obviously hasn’t happened.

Part of the supposed threat was that the Japanese were selling more inexpensive products to Americans, thus undermining American companies.  Today, most Americans don’t seem to have an issue with buying a Toyota or Honda (Japanese companies) or other foreign brands.  Of course, many of the jobs associated with these “foreign companies” are American.

If Americans face any threat, it is from their own government.  There is no foreign power willing or able to invade the United States via pure violence.  Therefore, the only way others can obtain property from Americans is through voluntary exchange.

When you think about the argument warning against the Japanese from decades ago, it is silly, but not just because it didn’t come true.  It is useful in this case to use a reductio ad absurdum.

Let’s say the Japanese (whether that means companies, individuals, or the government) started giving away cars and televisions to undermine American companies.  Americans could just go to the store and pick up their new car and television set for free.  If this is too ridiculous to imagine, then just think if a new car sold for only $2,000 that would normally sell for $20,000.

This would obviously be unsustainable for the Japanese, regardless of whether it were companies giving away products or the government heavily subsidizing them.

But let’s say that the Japanese decided to waste resources and had enough savings to do so for a long period of time.  Would it make sense for the Americans to turn down the free (or highly inexpensive) products?

Some would argue that it would cost American jobs.  This isn’t completely wrong, but we have to be specific.  It would cost Americans very specific jobs, but it wouldn’t mean there would be fewer jobs overall.

If I wanted a new car and only had to pay $2,000 instead of $20,000, then I would have $18,000 left over as compared to having to buy the American car.  I now have $18,000 in savings that I can continue to save, or invest, or spend on something else.  Now multiply this by tens of millions of Americans.

The important point is that we would not have to expend resources on cars and televisions any longer that we previously would have spent.  We now have additional resources to consume in the form of other products (goods or services).  The new jobs created would be determined by consumer demand.

Overall, Americans would be far richer at the expense of the Japanese who are subsidizing the products.

Tariffs and Artificial Intelligence

We don’t hear much about the Japanese taking over any longer.  Some people have switched it to the Chinese.

Hardly a day goes by that I don’t hear a bad economic argument about jobs being destroyed. It is used as an excuse to enact tariffs, which make foreign products more expensive.  They also make some domestic products more expensive if they are using materials that are imported (such as steel and aluminum).

The same claims are being made about artificial intelligence (AI).  We are supposed to be worried about robots taking our jobs.

Again, robots will take certain jobs.  They already have.  Just think about the self-checkout at a store.  This means a reduction of jobs for cashiers.

But when a company is able to reduce its labor force with the same productivity, then it reduces its costs.  This tends to happen across the board, and competition will lead to lower prices (all else being equal).

If robots became so efficient that they eliminated half the jobs that are currently in existence, this would actually be beneficial for people.  It could be temporarily painful for any particular individual who just lost their job, but you must consider that new jobs would be created based on consumer demand.  Since humans have virtually endless wants and needs, there is always work to be done.  It is just a question of what the work is and how it will be done in accordance with consumer demand.

In this scenario where half the current jobs go to robots, you have to consider that society would be so much richer, and this would be a benefit to everyone, since everyone is a consumer.  If robots can cook your meals, fold your laundry, and make you healthy at a very small cost, then you will have a lot of resources to consume in other areas that would not have previously been available or attainable.

Technology and robots make us wealthier because things can be done more efficiently.  And in regards to tariffs, we are better off with free and open trade without barriers.  This makes for more efficiency and lower consumer prices.

The Chinese are not taking over any more than the Japanese were decades ago.  We should actually hope that the Chinese and Japanese and everyone else get richer.  They will not get richer at the expense of Americans.  If anything, it will be beneficial to Americans, as it provides that much more opportunity for trade and efficiency.

We should not be fearful about jobs going away due to efficiency or changing consumer demand. As long as the government doesn’t interfere too much, there will always be jobs available.  And if anything, the jobs will actually be more fulfilling for people, as the robots take on the mundane tasks.

A few hundred years ago, the majority of the population worked on farms.  Maybe this was a dream come true for a few people, but I doubt that most people today want to be farmers.  We have computer programmers, massage therapists, dog groomers, marketers, athletes, singers, and the list goes on.  Most don’t want to be farmers, and they don’t have to be now because of technology and productivity.  Even most people working in a corporate job in a cubicle would not trade it for a long day in the fields.

The number of fulfilling jobs will only expand as long as we allow it.  We must accept free trade, and we must not be afraid of advancing technology.

The current protests in France are a rather big deal, especially if sentiment there is widespread across Europe.  The protests get some headlines in the United States, but probably not enough given their significance.

There are many takeaways from this whole thing, and I think most of them are positive.

First, it is important to understand that these protests are a continuation of what is happening elsewhere in the West in developed countries.  The British protested with Brexit.  The U.S. protested with the election of Trump.  The French are protesting in the streets, but maybe that is because they don’t have a good protest vote to make at the polls.

The protesters in France have and will be called many things.  They will be called fascist.  They will be called street thugs.  Maybe they will be called a basket of deplorables, but that term didn’t work out too well for Hillary.

I have no doubt that some of the criminal class has joined the protesters in causing mayhem and destroying private property (to the extent that it exists in France).  But I believe the origins of the protests are authentic, and it is largely anti state.  Now, if you go and ask the average protester, I doubt they will talk about the non-aggression principle or other overtly libertarian themes.  But they will say that the middle class is struggling and has had enough. Whether they call for a drastic reduction in government or more government help is another matter, but you could say the same about Trump supporters and Brexit supporters.

The bottom line is that the French president thought he could get away with another move to benefit the state at the expense of the regular person.  But he highly miscalculated and overstepped his bounds. He did the equivalent of not feeding his serfs.  If the serfs are well enough fed and don’t see too many luxuries enjoyed by the master, then the serfs will stay in line.  But every serf has his breaking point.

Americans have a tendency to not be quite as tolerant.  Perhaps a better term is obedient.  That is why we do not have the same level of taxation in the United States as what is seen in France.  It wouldn’t get to that point here.  But in the case of France, Macron added a straw that broke that camel’s back.

It’s interesting that people will say that they care about climate change, but it is easy to speak words.  Most Americans will say they oppose running up the national debt.  But when it comes time to actually cut something from the federal budget, then it becomes a lot more difficult and there is no consensus.

The same goes for global warming – excuse me, climate change.  Many of the protesters will say they support a green agenda, but that support wanes quickly when it means a downgrade in lifestyle. The French protesters realized that the higher gasoline taxes (on top of the already high gasoline taxes) were just a move to hurt the lower and middle classes, while lining the pockets of the state.

I think it is a positive development that even people in Western Europe are starting to see the fraud of the climate change agenda.  The agenda has little to do with the environment and a lot to do with taxation and control.

A Nanny State and the Consent of the Governed

The most surprising aspect for me of this whole protest movement in France is the origin of the name.  The protesters are being called the yellow vests, as they wear yellow vests when protesting in the streets.

Until a couple of days ago, I had no idea that French motorists are actually required to have these yellow vests in their vehicles in case of emergency.  I know Americans tolerate a lot of regulation in their lives, but would they really tolerate something this crazy?

We hear the term nanny state used.  I can’t find a better example of the nanny state than requiring all motorists to have yellow emergency vests in their vehicles.  The French protesters are really late in the game.  They should have been protesting the requirement of yellow vests long before these added gasoline taxes.

These protests are also a good demonstration that the politicians rely on the consent of the governed.  When these protesters hit the streets, it wasn’t long before Macron backed off his proposal to raise taxes.  Macron stayed in hiding and said he would delay the tax hikes.  But the serfs had already been awakened, and it seems to be going beyond this one tax now.

The state cannot survive without the consent of the governed.  The politicians and bureaucrats will always get away with as much as they can.  They will impose control to the degree that they can get away with it. The main thing that keeps them in check is not a constitution or the courts.  It is public opinion.  They rely on the cooperation of the large majority of the public.

I hear the objection that many people are against government or government leaders in the U.S. and elsewhere, yet they still go on.  For example, at least half the people in the U.S. oppose Trump, and many of them strongly so.  Yet Trump remains in power.

But you have to realize that the anti Trump people are not opposed to the state.  They are just opposed to one personality or one party.  They do not oppose the system.  There is widespread agreement from the American people on the state funding of Social Security, Medicare, Medicaid, education, and a long list of other things.  There are times that a majority will say they oppose a conflict overseas, but most of the people opposed are only passively opposed.  It is easy to say you don’t favor the U.S. military going into Syria, but it is more a question of whether you really care that much.

In the case of France, I don’t know if a majority of people are opposed to the gasoline tax hikes. But there is obviously a very vocal and irate minority.  It is one thing to take a poll and extrapolate that a few million people oppose something.  It is another thing when thousands of protesters hit the streets with authentic outrage.

In conclusion, I see the protests in France as largely symbolic.  It is showing that there is resistance against the state. Sometimes that resistance is quiet until there is a trigger one day.

This is good news for liberty.  France is not exactly a place of great liberty, but even here the people have a limit.  This is disrupting the plans of the globalists who seek centralization and state control.  It is a further disruption to the European Union. It is a disruption to the agenda of those who push climate change and all of the big government that goes along with it.  It is a disruption against political power.

We should celebrate these victories when they come, even when they aren’t purely libertarian.

Now that the establishment financial media is discussing the yield curve and the possibility of recession, there is going to be a lot of discussion on the causes.  The anti Trump forces will blame Trump, but I don’t know what the pro Trump crowd will blame.

During Trump’s campaign in 2015/ 2016, he was critical of the Federal Reserve.  He also pointed out that there were bubbles in the economy.  He was right. The problem is that his position has changed since becoming president.  He has taken credit for the boom in stocks and the overall economy, so it will be hard for him to not accept the blame.

Trump has been critical of the Fed lately, but it is because the Fed has been tightening and increasing its target federal funds rate.  Trump doesn’t want the Fed to burst the bubbles because it will take place on his watch.

If there is a recession on Trump’s watch, then I think the pro Trump crowd will blame the Fed. That will be their go-to excuse. They will be correct in blaming the Fed, but not for the reasons stated.  The Fed isn’t at fault because of its recent tightening. The Fed is to blame for its extremely loose monetary policy from 2008 to 2014.

I think there will be a lot of discussion about Trump’s policies on taxes, tariffs, and regulations.  Some will say that his tariffs brought on the recession.  Ironically, some of this may come from the left.

From a libertarian standpoint, it is good that Trump lowered corporate tax rates and some other taxes (although there are some libertarians who disagree on this point).  It is also good that he has actually reduced regulations in some areas.

On the bad side, Trump has enacted tariffs, which are taxes on imports and exports.  This causes consumers to pay more for products than they otherwise would have.  Also on the bad, side, massive government spending has continued on Trump’s watch, and it has even gotten worse.  The deficit has exploded again.  You know it is bad when we are looking at trillion-dollar annual deficits even if the economy stays out of recession.

I don’t want to say that all of these things have no impact on the business cycle.  They do have an impact.  Tax reductions can provide a temporary boost, even if it means bigger deficits.  Tariffs can certainly slow things down.  Massive overall spending by government is bad economically because it misallocates resources.

But none of these things are the primary cause of the artificial booms and busts that we see.

It’s the Monetary Policy

The main driver of the boom/ bust cycle is the Federal Reserve.  Its primary tools are the money supply and controlling of the interest rates.  These two things are related.  When the financial crisis hit in 2008, the Fed responded with unprecedented monetary inflation and near-zero interest rates.  The Fed continued its balance sheet expansion (monetary base inflation) until late 2014.

This is a classic case of the Austrian Business Cycle Theory, as taught by Ludwig von Mises. The artificially low interest rates and easy money cause resources to be misallocated and causes unsustainable booms.  The low interest rates send a false signal that there is more savings than what actually exists.

When the Fed stops inflating and suppressing interest rates, then the misallocations (malinvestments) are exposed.  The investors in the bubble sectors realize that it is unsustainable, and the bubble pops. This can happen eventually even if the central bank just slows down its pace of inflation.

If the central bank keeps inflating at ever-expanding rates, then eventually we will have what Mises referred to as the crack-up boom.  This is hyperinflation, which leads to far greater poverty than any recession or depression.

In other words, the recession that we will eventually get is baked into the cake.  It is unavoidable at this point.  The damage was already done.  It is just a question of how severe it will be and whether the government and the Fed allow it to run its course.

If we hit a recession soon, it won’t really be Trump’s fault.  But it was stupid of him to take credit for the so-called booming economy of the last two years.  We could certainly be much better off if he hadn’t enacted new tariffs. We could be better off if he had gotten Congress to cut spending instead of increasing it.  But no matter what, he can’t prevent a recession that was already in the cards.  The most he could do is to slightly speed it up or slow it down.

I think the mistake that many Austrian school economists have made is predicting a recession too early.  Maybe it is a mistake in predicting anything, since the Austrian school teaches that we can’t predict human action with certainty, which is the driver of the economy.

The problem is that timing is almost impossible.  Even though the Fed stopped its balance sheet expansion 4 years ago, it takes time for all of this to process through the economy.  Interest rates have crept up, but are still historically very low.  Bubbles can often last longer than what seems possible.  They can also blow up bigger than what seems possible.

As I have said, we actually need a recession for the benefit of the middle class.  It will be painful, but the current misallocations of the bubble economy are also painful.  Life has become quite expensive.  We need a recession, which will hopefully lead to a reduction in government.  One can always hope.